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Lenovo: Building a Global Brand 1.

IBMs sale of its PC business and Lenovo


IBM sold its Personal Computing division to Lenovo for a host of reasons. The deal came as an opportunity for IBM to shed an unprofitable operation and concentrate on consulting services. PCs for IBM had become commodity products by then and the company was making very little profit from PCs. Basically it was losing money from it despite its being a US$11 billion business. The problem was the revenues were very high in the PC business and the profits disproportionately low. There were times when the company lost money on every PC. The top management at the company had begun thinking about a business overhaul as the key suppliers of hardware and software components gained power. Analysts watched market trends and predicted that as PCs became cheaper, more powerful, and easier to link into networks, the number of customers prepared to buy everything from IBM would dwindle. In this situation IBM was forced to make a choice as to whether or not to stay in the PC business. IBM had already sold its related commodity hardware business and hard drive unit before the deal. The deal was to improve the financial profile of IBM and was to pave the way for the company to sell more servers and services in China. Lenovo was the ninth largest PC maker worldwide at the time, by market share and the number one in China and IBM had an eye on making inroads into the Chinese market by working with Lenovo. IBM approached Lenovo for a potential deal as some managers believed that Lenovo would become much more competitive as the Chinese company concentrated on PCs only and their strategy could be focused on growing instead of the holding pattern. IBM was to benefit from Lenovos position in its home market for Lenovo had established a distribution channel and retail network for its supplies of imported computers in China, had already launched its own PCs, had pioneered home computer concept in the country, had signed an Intellectual Property agreement with Microsoft and had formed an alliance with IBM for distribution of IBMs software in China. 2. Success prior to the acquisition In 2004 before the acquisition of the PC division of IBM, over 90% of Lenovos revenues came from China and the success of the company rested especially on its innovativeness in marketing. The company began as a distributor of imported computers but was able to respond to the demand of market when its computer scientists came up with its first original product Legend Chinese character card that would translate the English software for the local user. Lenovo then a group of computer scientists under Chinese Academy of Sciences was known as National Technology Developer or NTD that tried to bundle the product by itself with computers it sold to customers thereby popularizing computers. This marketing strategy boosted the sales of NTDs imports and got it more contracts. The success of the Legend card gave the new name- Legend to the company that brought computers in its name into the market in 1990. The company banked on relationship marketing for the sale of the product and reorganized into a PC business division in the wake of the success of this launch. PC business division got a young general manager who took strategic measures such as slashing prices of the product and eliminating direct sales force- a very unusual marketing strategy by Chinese standards at the time. When Legend introduced its first laptop to the country and marketed PCs with better CPUs it had the best cost provider strategy in mind. The company that had already turned the fifth largest producer of motherboards a year before was in a position to leave companies like Big Blue behind in the game at least in the home market. With the advent of the Internet in China the company bundled its PCs with oneyear Internet connection. This cross selling gave boost to its sales and Legend became the top selling brand in China.

But with Chinas admission into WTO the company the company envisaged the future competition and began pondering a new strategy. It tried to avail of global opportunity opened a Silicon Valley office

and started selling laptops in Spain and was made to get a new name Lenovo instead of Legend that was already a registered name in Europe. And before acquiring IBMs PC division Lenovo went on a global level marketing campaign under the slogan Engaging the World when it decided to be one of highbrowed sponsors of Turin winter Olympics of 2006 and Beijing Summer Olympics of 2008. Lenovo did not hesitate to pay US$ 80 million or getting admitted to the exclusive club of sponsors of these global events while it reported sales around US $ 3.2 billion and was not a global player then for as an adept marketer it could not afford losing an
opportunity of having access to exclusive worldwide marketing and building its own brand beside Olympic logo.

3. Post acquisition challenges The post acquisition challenges that Lenovo had to face on the one hand related to dealing with the IBM legacy that centered around the product such as Thinkpad as concerns were raised about the existing IBM customers and investments in continuous development and R&D while on the other to potential cultural clashes between the IBM stalwarts and the Chinese side. A big problem cited was the deal combined

two radically different companies. Lenovo performed little independent R&D and mostly manufactured low-end systems. More than half of its sales went to consumers and very few products were sold outside China. The sales talked of its strong ties to the government. On the contrary IBM sold to the corporate sector and often to customers who invested in IBM services and software. There was a fear of being dislodged by competitors. A big challenge was that Lenovo did not have international experience. Questions were raised as to their capabilities to deal a much more complex organization such as IBM and to serve many more geographical markets. Another big question was would a nimble company like Lenovo that had been able to respond to market demands rapidly clinching opportunities be able to really claim the over hundred markets that it bagged with the acquisition? Lenovo tried to offset these worries by communicating complementarities of the two companies and by mandating trust inside the new company and by management restructuring and measures such as keeping its headquarters in the USA and making English the working language of the company. 4. Brand management challenges
After the acquisition Lenovo faced branding challenges as it wanted to position itself vis a vis its competitors in the global market. The homework it did by signing sponsorship agreements for Turin and Beijing Olympics though enhanced its visibility the perception of the company was not ideal and needed brand awareness. It direly needed an image of a company that could carry forward a legacy while stay in the market with its inventiveness. To understand the aftermath of acquisition and related concern Lenovo began with extensive market research that was also targeted to assure the existing IBM customers that Lenovo would not compromise with quality or innovation as it was solely PC based business. The company also brought into play the best that it had from the East and the West namely from the original Lenovo the understanding of emerging markets, efficiency and a focus on long-term strategy and from

IBM the deep insights into worldwide markets and best practices from western companies. Thus they tried to establish Lenovo as a new world type of company. And as the company had the right to use the IBM logo for five years top marketing managers wanted to leverage that asset. Then they crafted a brand strategy to build the Lenovo as the masterbrand while continuing strengthening the Thinkpad product brand. Thus they took a synergy approach to create a global brand and positioned the company on its ability of efficiency and innovation. Three steps went down through the strategy. First the company ran advertisements of Thinkpad to tell customers about Lenovos commitment to Thinkpad product brand , secondly the company showcased the new and improved Thinkpad to ensure the perception of Lenovos ability to enhance its innovative values and thirdly it stressed the Lenovo master brand stood for innovation. Lenovo while built up on Thinkpad sub brand, the company also launched a new series of products for the other segment of market. Using its sub brand for premium products and master brand for price sensitive customers it wishes to cater to the needs of mass market. As competition grows in the industry the company may need to reposition itself. 5. Problems related to origin

Lenovo went global by M&A like some other Chinese companies that have gone global in search of gaining competitive advantages and had to suffer from the stigma that has been attached to Chinese firms in general in terms of their producing inexpensive goods, being untrustworthy and for so-called non-inventive. The company was posed the question of not having enough international experience and having a different culture. The companys efforts to acquire IBMs PC division was in peril for some time when it was opposed by some US congressmen who tried to stop the transaction in the name of the national security. To position itself as a global brand it had to establish that it did not carry along the best of the East but also the best of the West and had to leverage the IBMs Thinkpad as a sub brand. Some other Chinese companies were forced to abandon their attempts to purchase American businesses in the past. Lenovo moved its global headquarters to Purchase, New York after the deal and kept most of its former IBM development staff in North Carolina.